Ffyona Dawber has given her four least well-paid staff a pay rise. She’s the managing director of Synergy Vision, a small medical communications company in north-west London. In return, Brent Council will now cut £500 off her rates bill.

This is one of the ways in which local politicians are using every weapon at their disposal to try to tackle inequality, and as the jobs market picks up – and even David Cameron urges firms to pay their staff more – there is hope that a rising tide may start to lift the lowest-paid workers above the poverty line.

Dawber says the nudge from Brent council – which is also promising participating companies positive publicity – was less important than the idea that lifting her receptionist, office junior and cleaners above the London living wage of £9.15 an hour would bring a non-financial bonus: “We are doing it because it affects the company culture. It gives you good values. It gives you more productive staff.”

Since she made the decision, 18 months ago, none of the employees who saw their pay boosted has left. “In the past we never seemed to be able to retain receptionists,” Dawber says.

It is exactly these benefits – greater loyalty, better productivity, and the warm glow of positive publicity – that are motivating a growing number of employers to sign up to a pledge to pay the living wage (which is lower outside London, at £7.85).

Another London council, Islington, decided to lead by example in 2012: it put all of its direct employees on the living wage (funded partly by a £50,000 cut in the chief executive’s salary), and encouraged all of its contractors to follow suit. Despite doom-laden prophecies of lost jobs and bankrupt suppliers, the vast majority of the council’s contractors, accounting for more than 90% of employees, have complied, without any extra cost to Islington.

Workers demand the loving wage at a demonstration in 2014. Photograph: Kate Nye/Corbis

The council’s own analysis showed that in home care for the elderly and vulnerable, its providers wouldn’t be able to afford the boost required, so it used £1.2m of its own funds to ensure workers were paid the living wage.

Labour councillor Andy Hull, executive member for finance and performance, said: “If there’s one thing the Labour party ought to be about, it’s the dignity of work, and I think that’s what the living wage helps people to achieve.”

Using several methods, including knocking on their doors, Islington has encouraged other employers in the borough to pay the living wage. It has also taken advantage of its large pension fund stakes in a number of FTSE 100 companies to raise the low-pay issue at their annual meetings, with success in at least one case.

“It’s about political will: you need to mean it,” says Hull.

Nationally, Labour says it will use some of these strategies if it comes to power in May – using public procurement projects to encourage suppliers to pay their staff better, for example.

The living wage campaign began in London, when churches found their parishioners telling sorry tales of struggling to fit in family life around long hours at insecure, low-paid jobs.

“If there’s one thing Labour ought to be about, it’s dignity of work, and that’s what the living wage helps achieve.”

Andy Hull, Islington councillor

The national minimum wage, which was introduced by Tony Blair’s Labour government in 1998, helped to tackle some of the worst examples of poverty pay by providing a statutory floor. But employers have sometimes treated it as the going rate for hiring a low-skilled worker and, in the capital at least, it just isn’t enough to live on.

The Resolution Foundation suggested that the Low Pay Commission could, for example, publish analysis of which industrial sectors can best afford to pay more than the statutory minimum, and suggest a non-statutory “London weighting” to bring pay in the capital closer to a level that would fund a decent standard of living.

In the US, where the economic recovery has been strong, low-cost retailer Walmart, which had faced a noisy campaign from unions and lobby groups, recently raised the minimum wage it pays its staff.

In the UK, with unemployment at a six-year low and wage growth outpacing inflation (just) for the first time since the financial crisis, it might seem high time for the market to start delivering better living conditions for the poorest, without the need for picket lines and tax incentives. But Adam Posen of the Peterson Institute of International Economics in Washington, who is a former member of the Bank of England’s monetary policy committee, argues that despite rapidly falling unemployment, there is still little evidence that competition for staff is beginning to drive up pay.

“The wage pressures, whether in the US or the UK, are still minimal,” he says. He adds that employers can still tap into an army of people who have dropped out of the labour market altogether, or are working part-time but would like more hours.

Instead, he says, companies such as Synergy Vision in Brent, Walmart and others making similar moves are acting in enlightened self-interest: “This is going to happen with companies that are consumer-facing, both because they want to have the better reputation and because they want people interacting with these workers to feel better.”

“We hope we’ll get to a place where people will start to ask about pay and take it into account when they’re shopping.”

Rhys Moore, Living Wage Foundation

The retail sector, with its wafer-thin margins, is one in which low pay is particularly prevalent. But Rhys Moore, director of the Living Wage Foundation, says he hopes that as his movement grows, consumer pressure will help to make it socially unacceptable for store chains to pay low wages.

“We hope we’ll get to a place where people will start to ask about it and take it into account when they’re shopping.”

Frances O’Grady, general secretary of the TUC, says she worries that whatever the victories of campaigners, the recent pattern in which the gains of growth have fallen mainly to those on higher incomes will persist long after the financial crisis is forgotten.

“Looking at average figures can hide the growth of low-paid and insecure work such as zero-hours contracts, agency jobs and precarious self-employment. The worry must be that the jobs market has permanently changed, with poverty pay and insecurity baked in for a big group at the bottom.”

Nevertheless, Posen sees an important victory in pay rises like the one Walmart’s workers have won, and others at Costco and TJ Maxx. “It may not fix the whole system, but if you meaningfully affect the lives of several million people, it’s well worth doing.”

CASE STUDY: LUSH WAGES IN LONDON

“I wouldn’t be living in London if I wasn’t earning the living wage.” Jessica Griffiths, 21, a sales assistant at cosmetics company Lush, thinks she could probably scrape by with the rent, but everything else would be hard. She might just live on Pot Noodle, she jokes.

Lush, known for the heady floral fragrance that wafts from its shops, started paying the London living wage in 2011, after employees confronted company founder Mark Constantine at a staff party.

One employee asked him whether he was proud that most of them could not afford to live in London on their wages, recalls finance director Kim Coles. “He said: ‘We are going to have to do this.’ It was quite a leap of faith.”

That leap of faith continued when the living wage rose by 5.7% shortly after the company signed up. The London living wage is calculated by the Greater London Authority, which decided that government cuts to tax credits meant the living wage had to increase.

“I thought, blimey, if we had done that across the country and found our wage bill went up by 5.7%, that would have been very difficult,” Coles says.

Workers at 14 Lush shops in the capital earn at least £9.15 an hour - the London living wage - while staff outside London are guaranteed £7 an hour, 50p more than the national minimum, but less than the £7.85 UK living wage.

Some staff have accused the company of not living up to its ethical policy as it has not adopted the living wage everywhere.

Coles says Lush “definitely wants” to pay all UK staff the living wage, but will do so in its own time. “We have only just got the UK business back into profit. We will get there, but we need to get there at the right pace.”

Paying the London living wage adds £500,000 to Lush’s annual wage bill, and extending the policy to the rest of the country would cost a further £1.2m. The company made a profit of £268,000 from its UK retail business in its 2014 financial year, after a £2m loss in 2013. The global retail empire - Lush operates in 50 countries - made a pre-tax profit of £8.7m in 2014.

Coles is aware that staff in some parts of the country, such as Aberdeen, face high living costs. She says the company will raise the hourly rate outside London by 25p “in the next year or two”, but has no firm target. She adds: “One of my struggles is that if we add 25p here, what about the guys in Spain and Portugal?”